An increase in government spending on infrastructure is expected to result in a moderate volume growth of the Indian commercial vehicle (CV) industry in FY24, according to a report released on Tuesday.

According to CarEdge's analysis, the operating margins of the top three CV companies are anticipated to rise another 150 basis points to 14% over the next few years as realisation is anticipated to increase and commodity input prices to decline.

“With tailwinds like healthy replacement demand, increased freight movement and increasing government infra spending and a continued boom in e-commerce, the CV industry is expected to continue its growth momentum in FY24 with moderate volume growth of 8-10%,” said Arti Roy, Associate Director at CarEdge.

“Exports are likely to remain subdued for the current fiscal year,” Roy added.

The three cycles were completed, with volume growth rates of 2.8 times, 1.6 times, and 0.9 times, respectively, between FY01 and FY21.

The relatively slower growth seen between FY16 and FY21 can be attributed to a number of issues, including the non-banking financial companies (NBFCs)' liquidity crisis, the loosening of axle standards, higher vehicle costs because of the switch to Bharat Stage VI (BS-VI) emission standards and higher insurance premiums, elevated fuel prices, and a slowdown in the economy.

The Covid-19 pandemic made matters worse and caused the fiscal year 2020 to have the lowest volume levels compared to the previous ten years.

The CV industry is, however, currently going through a strong upcycle, as seen by a volume growth rate of 1.7 times during the last two years.

Due to pent-up demand as the economy recovered from the Covid-19 pandemic, the CV industry achieved substantial year-over-year volume growth of about 30.7% and 28.7% in FY22 and FY23, respectively.

As pent-up demand slows, the CV industry is predicted to have moderate volume growth of 8–10% in FY24. Export volume growth will also likely be restrained due to the uncertain global economy and inflationary worries.

All of the segments continue to experience robust demand. The medium and heavy commercial vehicle (MHCV) segment is anticipated to expand by 10-12% in FY24, whereas the light commercial vehicle (LCV) segment is anticipated to rise by 6-8%.

The large base effect and high interest rates continue to have an impact on the market for LCV. The MHCV segment experienced substantial volume growth of around 53% and 39.7% in FY22 and FY23, whilst the LCV segment experienced growth of about 21.7% and 23.1%, respectively.

Over the previous two years, the top three companies in the CV industry have seen an improvement in their average operating margins, which went from 3.39% in Q1FY22 to over 12% in Q4FY24.

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